The EUR/USD currency pair has come under notable selling pressure, sliding toward the psychologically significant 1.1600 level during Thursday’s Asian session. This downward movement reflects a complex interplay of macroeconomic expectations, monetary policy speculation, and geopolitical signals, particularly from the United States and the Eurozone.
Market participants are closely watching for the upcoming Eurozone Harmonised Index of Consumer Prices (HICP) data release, which is expected to shape the European Central Bank (ECB)‘s inflation outlook and influence further price action in the pair. The professionals at Fletrade offer a clear and concise explanation of this complex topic.
Eurozone HICP in Focus
The Harmonised Index of Consumer Prices (HICP) remains a key inflation metric across the Euro area. It is standardised to allow meaningful comparisons across member states. Today’s scheduled release could significantly influence market sentiment toward the euro, particularly given the European Central Bank’s commitment to data dependency in its policy decisions.
Should the HICP figures come in below expectations, it would reinforce dovish sentiment surrounding the ECB, which has already adopted a cautious tone amid mixed economic signals. Lower inflation readings may point to weakened consumer demand and thereby support the narrative for prolonged interest rate stability or potential easing.
Conversely, a hotter-than-expected print could lend temporary support to the euro, especially if it challenges the ECB’s current inflation path projections.
U.S. Dollar Strengthens on Hawkish Fed Expectations
Parallel to developments in the eurozone, the U.S. dollar (USD) has gained strength on expectations that the Federal Reserve (Fed) will maintain its benchmark interest rate in the 4.25%–4.50% range at its upcoming July policy meeting. This stance is primarily driven by tariff-induced inflation risks and persistent economic resilience in the U.S.
Recent U.S. inflation data for June surprised to the upside, with core and headline Consumer Price Index (CPI) figures showing sticky inflation trends. This has reignited concerns that the Fed may have to hold interest rates higher for longer to achieve its 2% inflation target. The market has interpreted this development as supportive for the greenback, given the resulting yield differentials between U.S. and European government bonds.
Further bolstering this narrative are comments from Dallas Fed President Lorie Logan, who emphasized the necessity for continued monetary restraint to offset inflationary pressures, particularly those stemming from tariff-related cost increases. Meanwhile, New York Fed President John Williams maintained that the Fed is in a “good position” policy-wise, suggesting a wait-and-see approach moving forward.
US Tariff Rhetoric Adds Fuel to the Dollar Rally
Adding another layer of complexity, the US President introduced fresh tariff rhetoric on Wednesday. The president mentioned that his administration is drafting a letter to over 150 countries, informing them of a 10% tariff on exports to the U.S.
He emphasized that the targeted countries are not major economic partners like China or Japan, implying that the geopolitical fallout may be limited, but inflationary effects are still plausible.
More crucially for forex traders, the US President floated the possibility of increasing these tariffs to 15–20%, although specifics remain unclear. Such moves are viewed as pro-inflationary, potentially complicating the Fed’s policy calculus.
Markets have interpreted this scenario as a USD-positive development, as it strengthens the case for a hawkish policy stance and boosts safe-haven demand.
In addition to tariff policies, he also made waves with his comments on Federal Reserve Chair Jerome Powell. Although he stated he would “love” for Powell to resign, he acknowledged that a forced removal could “destabilize markets”. This political tension surrounding the Fed adds an element of institutional uncertainty, which historically has bolstered USD demand as investors seek refuge in the world’s reserve currency.
Technical Picture: EUR/USD Under Pressure
From a technical perspective, EUR/USD is showing signs of bearish retracement, following its brief rebound in the previous session. The pair is currently trading around 1.1620, inching closer to key support levels at 1.1600, a region watched closely by both institutional and retail traders.
Should the pair decisively breach the 1.1600 level, further downside toward the 1.1550 region becomes plausible, especially if upcoming data aligns with the current USD-bullish macro backdrop. On the flip side, any surprise uptick in Eurozone HICP or dovish Fed rhetoric in the upcoming sessions could trigger a short-covering rally, pushing the pair back toward 1.1650–1.1700 resistance zones.
Conclusion
The EUR/USD pair remains vulnerable in the short term, under pressure from a stronger U.S. Dollar, elevated Fed rate expectations, and renewed geopolitical uncertainty stemming from tariff policy.
As markets brace for the release of Eurozone HICP data, the focus remains squarely on inflation dynamics and their impact on central bank policy divergence. Unless the eurozone surprises with stronger-than-expected inflation figures, the path of least resistance for EUR/USD may remain downward, with 1.1600 in sharp focus.
